Chapter 4: Policing the Bargain
Section 1: Competency to Contract
A. A person attains majority at the age of 18 in most states
1. Prior to this all contracts made are voidable
i. Voidable and therefore the contract is not absolutely void, but may be annulled or affirmed at the instance of the party entitled to invoke that action
ii. Therefore the minor can disaffirm the contract at any time before attaining the age of majority or shortly there after depending upon state law.
B. Halbman v. Lemke
1. Facts: Lemke sought restitution for damages caused to a car by Halbman, a minor, before he disaffirmed the purchase.
2. Rule of Law: Absent misrepresentation or tortuous conduct, a minor who disaffirms a contract for the purchase of a none necessity may recover his purchase price without liability for damage, depreciation, or other diminution in value
i. Capacity to Contract-The legal and physical ability to enter into a contractual agreement, typically characterized by the ability to understand the consequences of one’s action
ii. Contract for Necessaries-A contract for things that are necessary to subsist or to maintain a manner of living, such as food, clothing and shelter
iii. Disaffirmance-Words or actions evidencing an intent not to abide by the terms of a previous transaction
iv. Voidable-A valid act that may later be avoided due to some defect, but that is binding until repudiated
C. Webster Street Partnership v. Sheridan-A disaffirming infant is liable only for the value of “necessaries’ supplied under the contract
D. Limit on Disaffirmance: Doctrine of Necessaries-a minor is not liable for necessaries furnished on someone else’s credit. A minor’s right to disaffirm survives for a “reasonable time” after reaching the age of majority
E. Sharon v. City of Newton-contentions was the argument that allowing the parent to do what the minor cannot do violates public policy
F. Situations in which a minor may incur legal liability
1. Necessaries-goods or reasonably need for the minor’s livelihood
2. Emancipated-married/sets up a home; where the minor has become independent of parents, is not supported by them and has moved away from them to establish her own home.
II. Mental Competence
A. The fundamental idea of a contract is that it requires the assent of two minds. But a person non compos mentis, upon principle, cannot make a contract that will have any efficacy as such-This is now by most states seen as voidable instead of void
B. Means provided for protecting the interests of others who in dealing with the disabled person were unaware of the disability. Courts previous decree of competency depends on the purpose and if it is to appoint a guardian then all incompetent’s commercial transaction are void
C. Faber v. Sweet Style Mfg. Corp.
1. So deprived of mental faculties as to be wholly, absolutely, and completely unable to understand or comprehend the nature of the transaction.
2. Capacity to understand is not, in fact, the sole criterion. Incompetence to contract also exists when a contract also exists when a contract is entered into under the compulsion of a mental disease or disorder but for which the contract would not have been made.
oomfield School Dist.
1. Facts: Odorizzi was arrested on homosexual charges. Immediately after his release, the school district convicted him to resign
2. Rule of Law: When a party’s will has been overborne, so that in effect his actions are not his own, a charge of undue influence may be sustained.
i. Rescission-The canceling of an agreement and the return of the parties to their positions prior to the formation of the contract.
ii. Undue Influence-Improper influence that deprives the individual freedom of choice or substitutes another’s choice for the person’s own choice
G. Von Hake v. Thomas-Confidential Relationship-prerequisite to proving constructive fraud.
Section 2: Revision of Contractual Duty
A. Austin Instrument, Inc. V. Loral Corp.
1. Facts: Austin threatened to withhold delivery of precision parts unless Loral would raise the contract price.
2. Rule of Law: A contract modification is voidable on the ground of duress when the party claiming duress establishes that its agreement to the modification was obtained by means of a wrongful threat from the other party which precluded the first party’s exercise of free will
Contract Modification-a change to the terms of a contract without altering its general purpose